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Understanding the small business plan financials
1. Understanding the Small Business Plan Financials
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financials
2. Understanding the Small Business Plan Financials
Trying to get a business loan, the lender will require
among other things a business plan. One should not
panic, there are plenty of resources on the web and off-
line that can help. Really, a business plan is just a plan
that shows the lender one has done their research and
developed a reasonable plan to make their business a
success. The primary difficulty with the business plan is
the financials. Even experienced entrepreneurs sometimes
have trouble with their financials. The following is a quick
synopsis of what the three financials in a business plan
are in relation to a business. These financials are an
income statement, a cash flow statement, and a balance
sheet.
The income statement is also known as a profit and
loss statement (P&L statement). The intent of an income
statement is to show how much net profit the business is
or will be generating. It may be one of the simplest of
statements because it calculates first a business's gross
3. Understanding the Small Business Plan Financials
profits. Gross profit is revenue minus cost of goods. Then
the statement begins to account for the other business
expenses like payroll, rent, utilities, advertising, etc. Once
that is calculated and subtracted from gross profit, it
leaves the net profit. This will be an important figure for a
lender.
The next financial is the cash flow statement, which
essentially shows how cash is flowing in and out of the
business. It can be argued the cash flow statement is
similar to the profit and loss statement with a lot of the
same categories. However, a cash flow statement
accounts for loan payments (principal), owners draw, and
capital purchases, but not depreciation or write-offs.
Essentially any cash transaction is accounted for, so a
company's liquidity is being tracked. Its goal is to point
out when a business will need cash or be cash rich.
4. Understanding the Small Business Plan Financials
The final financial is the balance sheet. Everyone talks
about a balance sheet being a snapshot in time about a
company's health. The balance sheet totals the company's
assets and liabilities. It also tracks the owner's equity by
placing it with the liabilities, this provides a way for the
two categories to balance. When totaled the assets and
liabilities with owner's equity should equal each other.
What one finds with this financial is where the business
capital and liabilities are placed. It may not be too good if
a business's assets are primarily in accounts receivables or
equipment. Or the liability column is too heavy in the
owner's invested capital showing little capital coming from
revenue. Regardless, a balance sheet is a company's
momentary report card.
When writing a business plan one should not be too afraid
of the financials. Once the planner understands what they
are trying to show, the numbers will come naturally to
complete the plan.
5. Understanding the Small Business Plan Financials
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6. Understanding the Small Business Plan Financials
About this Author
There is more help for those looking for business loans. A very small business may be
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